Norway wealth fund plans to drop oil and gas stocks

Norway's trillion-dollar sovereign wealth fund is proposing to drop oil and gas companies from its benchmark index, which would mean cutting its investments in those companies, the deputy central bank chief supervising the fund told Reuters, sending energy stocks lower. It invests Norway's revenues from oil and gas production for future generations in stocks, bonds and real estate overseas.

"Our perspective here is to spread the risks for the state's wealth", Egil Matsen, the deputy governor at the central bank in charge of overseeing the fund, said in an interview in Oslo on Thursday.

Matsen said the decision does not reflect a particular view on energy prices or the sustainability of the sector.

According to Norges Bank, their analysis of the oil price risk in Norway's overall wealth fund risk was based on future oil and gas revenues, and its direct holdings in Statoil and the GPFG.

The Central Bank of Norway, which runs the fund, sent a proposal to the Ministry of Finance today.

If adopted by parliament, the fund would over time divest billions of dollars from oil and gas stocks, which now represent 6 percent - or around US$37 billion - of the fund's benchmark equity index.

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Norway is western Europe's biggest oil and gas producer and its sovereign wealth fund, known officially as the Government Pension Fund, is used to invest the proceeds of the country's oil industry.

Norges Bank, which manages Norway's $1trn fund, said ministers should take the step to avoid the fund's value being hit by a permanent fall in the oil price.

Norges Bank said: "The analyses show that oil and gas stocks are significantly more exposed than other sectors to movements in oil prices". The wealth fund, which controls about 1.5 percent of global stocks, proposes dropping %37 billion of shares in worldwide giants such as BP, Exxon Mobil Corp., Royal Dutch Shell Plc. and other holdings. It owns owns more than $660bn-worth of shares in over 9,000 companies globally, and reached the $1tn-mark in terms of assets under management in September.

The proposal to sell oil and gas stocks must be approved by the government.

The fund has grown so large that even though the Norwegian state is taking less than 3 per cent of the fund's value every year for its fiscal budget in recent years, oil spending now accounts for one in five crowns spent by the state. The move would also mean raising its investments in other sectors.

Since the establishment of the GPFG, Norges Bank has advised the Ministry of Finance on the fund's investment strategy.